China’s stocks rose, driving the benchmark index to a three-week high, on speculation the government will take steps to shore up equities that last month traded at the cheapest level since at least 1997.
Industrial & Commercial Bank of China Ltd. led banking shares higher after the state-run Central Huijin Investment Ltd. raised its ownership in the lender. Industrial Securities Co. jumped 10 percent, pacing a rally for brokerages, after the Shanghai Securities News said the government will ease limits on brokers’ operations. Baoshan Iron & Steel Co. advanced 1.3 percent after the company bought back shares.
The Shanghai Composite Index (SHCOMP) climbed 2 percent to 2,115.23 at the close, the highest since Sept. 14. The CSI 300 Index added 2.2 percent to 2,320.16, with seven out of 10 industry groups rising over 2 percent. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong rose 1.9 percent.
“Huijin’s stake in ICBC shows that the government fund thinks prices of bank stocks are reasonable,” said Zhang Yanbin, an analyst with Zheshang Securities Co. in Shanghai. “This boosts sentiment in the market.”
The Shanghai Composite Index trades at 11.6 times the earnings of China’s biggest companies, after valuations fell to 11.3 times last month. The gauge has lost 3.8 percent this year on concern the government is struggling to reverse an economic slowdown. The International Monetary Fund cut its 2012 growth estimate for China’s economy by 0.2 percentage point to 7.8 percent.
ICBC, the world’s largest lender by value, gained 1.3 percent to 3.80 yuan, the highest close in a month and providing the third-largest boost to the Shanghai index. Central Huijin bought 6.3 million yuan-denominated shares in ICBC in Hong Kong and Shanghai trading last quarter, raising its holding to 35.43 percent of the total as of Sept. 30, the Beijing-based lender said. China Construction Bank Corp., the second-biggest lender, advanced 2 percent to 4.06 yuan.
Industrial Securities jumped by the daily maximum of 10 percent to 10.38 yuan. Citic Securities Co., the nation’s biggest-listed brokerage, rose 3.2 percent to 11.86 yuan. China may introduce policies to relax limits on brokerages’ operations and investment methods, the Shanghai Securities News reported, citing unidentified people. The government will also support cross-border operations and mergers, the report said.
China Galaxy Securities Co. moved a step closer to an initial stock sale after getting a government waiver from a shareholding rule that had barred it from going public, said two people with knowledge of the matter.
The Beijing-based brokerage may seek to raise about $1 billion in Hong Kong and Shanghai, said the people, who asked not to be identified because the plan is private.
Baoshan Steel, China’s largest listed steelmaker, rose 1.3 percent to 4.63 yuan. The company bought back 131 million shares between Sept. 21 and Oct. 8.
U.S. investors are “in no hurry” to participate in the Chinese equity market, according to a Citigroup Inc. report by analyst Minggao Shen yesterday, citing his meeting with about 60 equity investors in the U.S.
Investors were cautious about the economic slowdown in the mainland, lack of policy visibility and risk of further downside to corporate earnings, according to the report. There’s concern China stocks aren’t as cheap as the numbers suggest and there’s no clear sign de-rating is near the end, said Shen.
Chinese equities posted the biggest drop in more than two weeks in New York yesterday. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, lost 1.1 percent, its steepest drop since Sept. 20. The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., slid 1.1 percent to $34.99, the biggest one- day drop since Sept. 25.
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